Buying Amid Market Decline Provides Clues

Insiders

January 15, 1996|BOB GABELE

So far, 1996 has been somewhat rough on the U.S. equity markets.

The kind of market weakness we've been witnessing, however, does not come without providing some valuable clues. When a market is experiencing sharp sell-offs such as those so far this year, we like to look for issues whose prices are holding up under the pressure.

This type of "buying under the cover of stock market weakness" typically points us to issues that are likely to be heading higher once the selling pressure eases. When insider buying accompanies such an issue, our conviction becomes much stronger about the stock's chances for moving higher in the months ahead.

This week, we've detected this alignment of circumstances in Westinghouse Electric Corp. (WX). The shares held up well during the nearly 100-point drop on Jan. 10.

For quite some time, insider signals from the company remained neutral as executives remained silent while their shares languished near their lows. When they finally acted, however, their response was very positive.

In August and September, three insiders picked up 16,000 shares in the $13 range. Accumulation has continued: Three additional insiders purchased 32,000 shares in December at prices averaging $16. The biggest buyer was director Robert D. Walter, who added 25,000 shares to his holdings on Dec. 11 for $16.75 each. Not only was he averaging up from his 15,000-share buy earlier in the year at $14.88, he's investing more dollars at the higher prices.

Another insider averaging-up is director Robert Cawthorne, who picked up 5,000 shares at $16 during the month. In August, he bought the same number of shares at $13.38. These buys make 1995 the largest year on record for insider buying at Westinghouse.

The majority of recent interesting insider data, however, has been on the sell side. Here are some of the latest:

-- PepsiCo (PEP): Pepsico, like many other high-quality, noncyclical consumer stocks, enjoyed a banner 1995 - up almost 60 percent for the calendar year. While most analysts agree that the company's core fundamentals and outlook remain attractive, the real question now is valuation as the stock is trading near its all-time high and on the high side of its relative price-earnings ratio. The recent insider activity may suggest that the stock has a more limited, short-term upside potential. Three insiders sold 310,000 option shares at $53.13-$55.50 in November, and a fourth declared his intention to dispose of 12,500 during December. This latest activity should be considered in conjunction with September's selling by two company insiders in the $49-$51 range. Chairman David Calloway and director Andrall Pearson (both insiders since at least 1985), disposed of 40,000 and 20,000 shares, respectively. More recently, Calloway exercised options for 40,000 shares and immediately sold them in the open market at prices between $53.13 and $53.25. These options did not expire until 1997, and Calloway dropped 160,000 shares during 1995. Before 1995, he had not sold shares in the open market since 1992.

-- Haemonetics Corp. (HAE): Between Sept. 7 and into December, three insiders at Haemonetics have sold or indicated an intention to sell a total of 285,100 shares.

This brings the total shares sold by insiders for 1995 to 857,889, more than the 674,900 sold in 1993 when the shares traded at higher ground for most of the year. We caution investors about becoming too complacent around the steady outflow of insider shares at the company. It is easy to become accustomed to a steady level of insider sales and lose focus on the real issue, which is, how much are insider holdings dropping?

In the case of some Haemonetics Corp. insiders, the answer is "quite a bit."President John White has sold or indicated selling a total of 513,300 shares this year. Assuming the sale of his December indications, his holdings are at 2,111,336 shares, a 48 percent reduction from the initial public offering in 1991. Officer James Peterson has sold or indicated selling a total of 181,300 shares this year and has reduced his holdings by 46 percent from the first days of the offering. Many shares were sold this year at relatively low prices. For example, 161,000 shares were sold in late November and December in the $18 range, after the shares had dropped from the $22 level earlier in the month on revenue questions. The company manufactures and markets automated systems for collection, processing and surgical salvage for blood.

Bob Gabele is president of INVEST/NET Inc., a Fort Lauderdale company that collects information on insider trading. His column appears on Mondays.